UBS Raises Bet On Global Stocks

Tom Burroughes, Group Editor , November 29, 2018

UBS, the world’s largest wealth manager, is increasing exposure to the equity market, unfazed by recent volatility and convinced that the decade-long stocks bull market is “intact”.

The Zurich-listed group, whose total invested assets at its wealth arm stood at SFr2.392 trillion ($2.39 trillion) at the end of September, has increased its overweight stance in global equities.

“UBS believes that the bull market remains intact, valuations look compelling and there is scope for positive surprises,” the firm said.

The MSCI Emerging Markets index of equities has fallen by 13.85 per cent since the start of this year. By comparison, the MSCI World Index of developed countries’ index is down by 3.3 per cent (both percentages are in dollars, and include the impact of reinvested dividends). Worries about escalating US-China trade tariffs and rising US Federal Reserve interest rates have hit some markets, particularly those in emerging markets with underlying financial problems, such as Turkey and Brazil.

The Swiss bank said trade tensions are likely to continue but it now sees more potential for gains in stocks, and predicts markets will rise over a six-month horizon.

“The market fall in October and further sell-offs in recent weeks represent a correction in the context of an ongoing bull market, rather than the start of a bear market. We acknowledge that the bull is maturing, and this stage of the cycle is typically associated with both higher volatility and more modest scope for further gains. But we think that the value offered by global stocks justifies tolerating the potential for higher volatility,” Caroline Simmons, deputy head of UBS Wealth Management’s UK investment office, said.

“While markets remain fragile, the recent sell-offs represent a buying opportunity. Even using our own cautious earnings estimates and factoring in the first rounds of US-China trade tariffs, valuations still look favourable, and there is certainly room for the market to move higher,” Simmons added.

US
In the US, which is the furthest along in the economic cycle, wage and inflation pressures are building, and labour markets are tightening. But UBS said its research has assessed 120 prior recession episodes over the last 40 years and found that current data in the US, as well as the Eurozone and Japan, is not consistent with prior pre-recession experiences.

“Consumer consumption almost always decelerates going into a cycle peak, but in the three largest developed market economies it is accelerating. Employment growth is showing little sign of slowing down - last month the US added more than 250,000 jobs. There are encouraging signs that the eurozone domestic economy is holding up well, despite some export weakness,” it said.

Growth forecasts for next year have been revised down for most of the world’s major economies by some groups. According to the Organisation for Economic Co-Operation and Development, for example, global gross domestic product is now expected to expand by 3.5 per cent in 2019, compared with the 3.7 per cent forecast in last May’s OECD outlook, and by 3.5 per cent in 2020.